Your pension tax-free lump sum is usually up to 25% of what you have built up, capped at £268,275 in total; the rest is taxed as income.
Pension Wise, from MoneyHelper, charges nothing, gives impartial guidance and has government backing, and can talk your options through. Where your own pots, tax and plans complicate that, an FCA-authorised adviser can weigh all three together, and the form on this page starts an enquiry with one.
How much of a pension is tax-free?
GOV.UK gives the rule in two sentences:
You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The most you can take is £268,275.
— GOV.UK, Tax when you get a pension, accessed 18 October 2026
The quarter is measured on what each pension holds; £268,275 is the ceiling across all of them together. GOV.UK's own example is a whole pension of £60,000 from which £15,000 is taken as a tax-free lump sum; the provider then takes the tax off the remaining £45,000.
"Usually" matters. Providers may not offer every way of taking money, so ask yours. Nor is the cash compulsory. MoneyHelper says "You don’t have to take the full 25% as a tax-free lump sum, or any at all", though a larger sum now means a smaller income later.
As for when, GOV.UK says it depends on your scheme's rules and is "usually 55 at the earliest", and that taking the cash leaves your tax-free income allowance alone: "The tax-free lump sum does not affect your Personal Allowance." HMRC's manual adds that the normal minimum pension age goes up to 57 on 6 April 2028, as when you can take your pension explains.
The lump sum allowance: the cap on tax-free cash
The £268,275 limit is called the lump sum allowance. GOV.UK's page on it, read on 18 October 2026, also gives a larger figure: you or your beneficiaries may be able to take a tax-free lump sum of up to £1,073,100 in certain circumstances (GOV.UK, Lump sum allowance).
That is the lump sum and death benefit allowance, which applies to a lump sum "due to serious illness" or "certain lump sum death benefits". It does not raise the cap on ordinary tax-free cash: any lump sum that counts towards your lump sum allowance also counts towards the lump sum and death benefit allowance. See the lump sum and death benefit allowance and pension death benefits.
The allowance runs across every scheme: GOV.UK says "You must add up how much of your allowances you’ve used in all the pension schemes you’re in". Cash above it is taxed rather than lost: "If you take a lump sum that goes above your allowances, you’ll need to pay Income Tax on the extra amount", which HMRC's manual says is charged at "the individual’s marginal rate".
When the limit can be higher or lower
GOV.UK says "If you hold a protected allowance, this may increase the amount of tax-free lump sums you can take from your pensions", and HMRC's manual names primary, enhanced, fixed and individual protection among those that can lift the figure above £268,275; see the lifetime allowance and what replaced it, primary protection, enhanced protection, fixed protection and individual protection.
The allowance can also be lower. GOV.UK says it may be reduced if all three of these apply: you had an eligible job (for example professional sports, dance and modelling), you joined your pension scheme before 2006, and you take a lump sum before you’re 55.
Taking the tax-free part up front or in stages
Nothing in the 25% rule forces a single payment. MoneyHelper says up to a quarter can be taken tax-free under any option when paid as lump sums, with the tax-free cash from all your pensions together staying inside the lump sum allowance. HMRC's manual describes two routes.
Tax-free cash first, then the rest
When a member becomes entitled to certain pension benefits, HMRC says, "the scheme may also pay that member a tax-free lump sum", called a pension commencement lump sum. It must be linked to drawdown, a lifetime annuity or a scheme pension, the basic rule is that "25% of the total value of the pension and lump sum entitlements arising at a particular time" may be paid this way. It "must be paid within an 18-month period starting 6 months before and ending 12 months after the member becomes entitled to it". The rest then goes into pension drawdown or buys an annuity.
A quarter of each withdrawal
The alternative is to leave the pot in place and take cash as needed. HMRC calls each payment an uncrystallised funds pension lump sum (UFPLS): "25% is not liable to tax" and "75% is taxed as pension income". The tax rules "do not limit the number" of them, and the whole pot can go in one payment or in several, "Depending on the rules of the registered pension scheme", so ask your provider. See uncrystallised funds pension lump sums and how to take your tax-free lump sum.
| Tax-free cash up front | Cash in stages (UFPLS) | |
|---|---|---|
| Tax-free part | Up to 25%, when the pension starts | 25% of each payment |
| Taxed part | Taxed as income when drawn | The other 75% of each payment |
Emptying the pot in one payment follows the same split, except that all the taxable part lands in a single tax year; what that costs is set out in cashing in your whole pension. Whatever stays in the pension remains invested, and investments can lose value as well as gain it, so the pot could end up smaller than the money paid into it.
How the rest of the pension is taxed
Whichever route you use, the part that is not tax-free joins the rest of your income for the tax year, 6 April to 5 April, as MoneyHelper describes it, and is taxed with it. GOV.UK says tax is due on pensions "if your total taxable income is more than your Personal Allowance", and the total takes in the State Pension (see is the State Pension taxable), wages and income such as rent or savings interest.
So the size of a withdrawal can change the rate: GOV.UK cautions that a big withdrawal can attract a higher rate of tax and possibly a top-up bill once the year ends. Spreading helps: MoneyHelper suggests staggering withdrawals over different tax years to avoid a higher Income Tax band. Scotland sets its own rates, so GOV.UK publishes Scottish income tax separately from the rates for the rest of the UK, and links an online tool for estimating tax on a pension. More is in tax on drawdown withdrawals.
The provider normally takes the tax off under PAYE before paying you and sends a P60 after the year ends, GOV.UK says. The first taxable payment can be over-taxed, because MoneyHelper says a provider may apply a temporary or emergency tax code that treats it as if it recurred every month; getting the excess back is covered in claiming back overpaid pension tax.
How much taxable money to take in a year, and from which pot, depends on everything else you have coming in. If you want those choices tested against your whole position by an FCA-authorised adviser, say what you are weighing in the form on this page; the enquiry costs nothing.
Final salary and other defined benefit schemes
A final salary or career average scheme promises an income, not a pot, so the quarter is measured another way. HMRC's manual takes "one quarter of the value of the pension plus the lump sum", valuing the pension with a fixed factor because there may be no fund to measure. The cash is a pension commencement lump sum like any other, so it also counts against the lump sum allowance.
Some schemes pay a set lump sum. In others, HMRC says, cash "may only be given at the expense of part of the scheme pension entitlement", so the lump sum means a lower income later, as MoneyHelper also warns. Defined benefit members should check with the scheme whether a tax-free lump sum is on offer; the scheme can also say what a given sum would cost in pension. See the final salary lump sum, defined benefit pensions and the lump sum allowance, final salary pensions and, for one public scheme, the NHS pension lump sum.
Small pensions have one more route, trivial commutation: GOV.UK says people whose private pensions total £30,000 or less may be able to draw certain types out in a single lump sum, usually a defined benefit pension. 25% of it is tax-free if you have not already accessed the pension, but the whole lump sum is taxable if you have, and payments from more than one pension must all be taken within 12 months of the first. More on trivial commutation; see also small pots in how small pot pensions are taxed, and moving a final salary pension in should I transfer my final salary pension.
Before you take it: benefits, paying in and scams
Means-tested benefits. Money taken from a pension can affect benefits if it raises your income or savings, MoneyHelper notes; GOV.UK's early retirement guide names Pension Credit, Universal Credit, Housing Benefit and income-related Employment and Support Allowance. For Pension Credit, DWP's guidance for advisers (updated 8 May 2026) counts ad-hoc lump sums from a pot as capital: above its £10,000 Pension Credit threshold the claimant is treated as having deemed income from the capital, and money spent or given away can still be counted under the deprivation of capital rules. Other benefits set their own limits.
Paying in afterwards. GOV.UK says "You may have to pay a tax charge on money you put into your pension after you withdraw cash." One reason, MoneyHelper explains, is that taking taxable money can cut the annual allowance (£60,000 for 2026/27 according to GOV.UK) to £10,000. See pension tax relief, the money purchase annual allowance and pension recycling, which covers paying tax-free cash back in.
Scams. If someone calls out of the blue about your pension or your tax-free cash, the FCA says the safest thing to do is hang up; its pension scams page explains how to check that any adviser is authorised.
Questions about the tax-free lump sum
Should I take the 25% now or leave it in the pension?
It is a trade-off: MoneyHelper notes that taking more now leaves less to pay an income later, and that growth inside a pension is tax-free. What to do with the cash is in what to do with your tax-free lump sum; Pension Wise can go through it free.
Can I take 25% tax-free from each of my pensions?
Usually, yes. MoneyHelper says you can normally take up to 25% from each pension, provided the tax-free cash from all of them together stays within the lump sum allowance, and that with several defined contribution pensions you can choose a different option for each. See lump sums from two pensions.
What is a pension commencement excess lump sum?
It is HMRC's term for a lump sum representing rights beyond the allowance: once the lump sum allowance is fully used, "any pension entitlement or uncrystallised funds crystallising beyond this point may be paid entirely as a lump sum", subject to the scheme's rules.
Can I take the tax-free cash and buy an annuity with the rest?
Yes. MoneyHelper says you can take some of your pension tax-free, up to a quarter, and convert the rest into a regular, guaranteed income, which is an annuity. The choice is compared in annuity or drawdown.
Your next step
The tax-free part of a pension is usually a quarter, up to £268,275 across all your pensions, with the rest taxed as income in the year you take it. Pension Wise explains the options free, and each provider can say how much allowance you have used. To have your pots, tax band and benefits looked at together, one way in is the form on this page, with your contact details and a short note of what you want covered for an FCA-authorised adviser to pick up.
Sources, accessed 18 October 2026: GOV.UK, Lump sum allowance, Tax when you get a pension, Personal pensions; HMRC Pensions Tax Manual, PTM063300, PTM063210, PTM063240, PTM171000; MoneyHelper (archived copies), pension pot options, drawdown, whole pension in one go, defined benefit pensions; DWP, Pension Credit guide; GOV.UK, Early retirement: benefits; FCA, Pension scams.